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Three easy reforms that would cut back the power advantage of the financial sector over the other sectors of the economy.
Dick Eastman
Aug. 27, 2012
. Nationalize the FDIC or authorize/mandate that depositors of failed lending instututions be compensated with $10,000 per citizen depositor with government fiat printing press money. The government is responsilbe for domestic purchasing power. But at the same time since it guarantees deposits, the government must have first claim to the defunct bank's assets.
2. When the assets of a failed bank are sold off, the best and worst investments should be paired for the sale, that is, they must be sold together to the same buyer. It is wrong to let banks have the good assets and then to leave the tax payers to take the loss of the bad assets. If they can bundle and securitize our mortgages without our permission, we the people can bundle and require tandem sale of the junk assets they let happen with the "cherries" they are wanting to pick.
3. One power of the Federal Reserve System should be taken away from that privately owned and independently controlled corporation and given to the United States Congress. Both Houses of Congress should set the reserve requirement twice a year. A reduction in the reserve requirement (or a base rate from which different reserve requirements are all determined) results in banks being allowed to lend more money and raising the requirement requires banks to call in loans or to lend less. This would enable Congress to fight deflation and recession with reflation or to curb private lending and money supply if a need for doing so should ever arise. This would return to Congress the power to aid the economy at its own discretion, but would not allow Congress to print money for its own pork spending. It would not have the power spend new funds into existence or to pay government debts with inflation. When the housing collapse began I wrote an article calling for the Fed to immediately reduce the reserve requirement and either use the freed lending capacity to make new loans (reflate the domestic economy) or to extend grace on loan payments while not a drain that would put them in insolvency (insolvency is, in part, defined by a bank having in sufficient funds to back its loans outstanding). But of course that is not what the Fed, which represents creditors and bankers wanted - they profit from deflation -- their IOUs become worth more and they are able, as a "club" to buy up foreclosed assets since they are the only ones with ready funds to do so. If Congress had the power to reduce the reserve requirement the entire housing disaster would have been eliminated.
I've thought this one through and have decided that Congress should set the reserve requirement this way. Both the House and Senate convene one day in joint session. The Vice President, who chairs the Senate, will preside over the joint Reserve Requirement Meeting. Each Senator and Congressman will have one vote. There will not be a Committee that conducts hearings or makes recommendations on the question of the proper reserve requirement. Each Senator and Congressman will have to find the best advice he can -- from the economics departments of the universities of his own state, from his own staff, from his own favorite genious, or from what his constitutents and campaign contributors and lobbyists are telling them. (Let the lobbyists go after all of them individually if they can - rather than having party bosses and loaded committees make the usual loaded recommendation that the full session merely "rubber stamps" -- the heck with that noise. The Vice President will pick an reserve requirement to start the voting process, and will put to a vote this question: "All of those who think a reserve requirement of 12 percent or higher so indicate by raising your indicator." Raised indicators are counted. If there is a majority for 12 or above, the Vice President will pick a higher percentage requirement (calling for votes on different rates in whole number rates, half percent or quater percent. If a majority do not approve 12 % res req or higher the Vice President will call a lower requirement percentage. By successive calls and votes the joint Congress will reach a single number, say 8 and a quarter percent. To disallow chairman's abuse, any Congresslan or Senator can call for a recount or 25 percent of the assembled can call for a roll call vote count, to keep things honest.
4. Many politicians and opinion molders these days want to cut the size of government. This populist however recommends that the people create a new cabinet post and a new government agency, The Department of Finance Regulation. This organization will take responsibility for those powers taken away from the private FDIC and Federal Reserve System. It will be the Macro-economic regulator, functioning like the Department of Agriculture and the Department of Commerce used to operate -- but also it would be given the priority of the Defense Department, because in this day the great threats are of economic attack and international players in finance are always dangerous if not intentionally hostile and seeking our harm. It's function would be, not to fight inflation or reduce unemployment, but to balance regulate the amount of debt, the balance of trade etc. It would be made up a a completely new culture in our government, far removed from the political and bureaucratic culture at the State Department or Treasury. If the nation were ever to adopt the social credit system of new money creation, this agency would be responsible for determining the optimum household dividend.
2. The Populist Household Dividend Reform. You already know about this one. The final stage of remaking the economy to serve the citizens and not international finance. Social Credit Dividend. 100 percent reserve requirement for lending institutions. Repudiation of existing debt as both fraudulent and life threatening to the nation. Excess wealth tax. Balanced trade constraint. Protective barriers to protect the "Lower Loop" economy (Household Sector, Public Goods Sector, Domestic Production Sector) from the depradations of international investment, derivatives trading, currency manipulation, offshore sheltering of money that should be in circulation domestically etc.; the elimination of the corporation structure to be replaced by the "Henry Ford" model of the single proprietorship or the partnership model, with full liability to the owners. Corporations to be broken up and auctioned off to whatever size partnerships or proprietorships can afford -- stock ownership (common stock) only to 49 percent of total worth. The end of National Banking -- having all banks become part of one or another state's banking system with out-of-state branches sold off or liquidated. States will be free to regulate banks any way they choose, including single building banks etc. However the Department of Finance Regulation will have authority to regulate large transactions requiring the cooperation or combined capital of interstate banks. Note: In the age of computers a lot of small state banks can pool together to accomplish what the big banks (that will be no more) used to do. There will be no more JP Morgans or Rockefeller robber barons operating out of Wall Street. Our market economy will be a true Jeffersonian one -- with the great flaw that has always plagued this nation's economic well being, finally removed. From now economic growth will come from profits earned in an economic with ample aggregate demand to make the superior entrepreneur a success.
Don't know what the hell I'm talking about, do you?
Dick Eastman
Yakima, Washington